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Symmetry of evidence without evidence of symmetry

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  • , G.

    (Department of Economics, Boston University)

  • ,

    (Department of Managerial Economics and Decision Sciences, Northwestern University)

Abstract

The de Finetti Theorem is a cornerstone of the Bayesian approach. Bernardo (1996) writes that its "message is very clear: if a sequence of observations is judged to be exchangeable, then any subset of them must be regarded as a random sample from some model, and there exists a prior distribution on the parameter of such model, hence requiring a Bayesian approach." We argue that while exchangeability, interpreted as symmetry of evidence, is a weak assumption, when combined with subjective expected utility theory, it implies also complete confidence that experiments are identical. When evidence is sparse, and there is little evidence of symmetry, this implication of de Finetti's hypotheses is not intuitive. This motivates our adoption of multiple-priors utility as the benchmark model of preference. We provide two alternative generalizations of the de Finetti Theorem for this framework. A model of updating is also provided.

Suggested Citation

  • , G. & ,, 2010. "Symmetry of evidence without evidence of symmetry," Theoretical Economics, Econometric Society, vol. 5(3), September.
  • Handle: RePEc:the:publsh:596
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    1. Mongin Philippe, 1995. "Consistent Bayesian Aggregation," Journal of Economic Theory, Elsevier, vol. 66(2), pages 313-351, August.
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    Cited by:

    1. Epstein Larry G & Seo Kyoungwon, 2011. "Symmetry or Dynamic Consistency?," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-14, June.
    2. Larry G Epstein & Yoram Halevy, 2019. "Ambiguous Correlation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(2), pages 668-693.
    3. Li, Jian, 2019. "The K-armed bandit problem with multiple priors," Journal of Mathematical Economics, Elsevier, vol. 80(C), pages 22-38.
    4. repec:bos:wpaper:wp2013-001 is not listed on IDEAS
    5. Luciano Castro & Alain Chateauneuf, 2011. "Ambiguity aversion and trade," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 243-273, October.
    6. Epstein, Larry G. & Seo, Kyoungwon, 2015. "Exchangeable capacities, parameters and incomplete theories," Journal of Economic Theory, Elsevier, vol. 157(C), pages 879-917.
    7. Burkhard C. Schipper, 2024. "Predicting the Unpredictable under Subjective Expected Utility," Papers 2403.01421, arXiv.org.
    8. Roee Teper, 2016. "Who is a Bayesian?," Working Paper 5861, Department of Economics, University of Pittsburgh.
    9. Leonardo Pejsachowicz, 2016. "Stochastic Independence under Knightian Uncertainty," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-01753323, HAL.
    10. Nabil I. Al-Najjar & Luciano De Castro, 2010. "Prediction Markets to Forecast Electricity Demand," Discussion Papers 1529, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    11. Roee Teper, 2016. "Plans of Action," Working Paper 5859, Department of Economics, University of Pittsburgh.
    12. Epstein, Larry G. & Halevy, Yoram, 2014. "No Two Experiments are Identical," Microeconomics.ca working papers yoram_halevy-2014-9, Vancouver School of Economics, revised 15 Feb 2017.
    13. Peter Klibanoff & Sujoy Mukerji & Kyoungwon Seo & Lorenzo Staca, 2021. "Foundations of ambiguity models under symmetry: α-MEU and smooth ambiguity," Working Papers 922, Queen Mary University of London, School of Economics and Finance.
    14. Al-Najjar, Nabil I. & De Castro, Luciano, 2014. "Parametric representation of preferences," Journal of Economic Theory, Elsevier, vol. 150(C), pages 642-667.
    15. Peter Klibanoff & Sujoy Mukerji & Kyoungwon Seo, 2014. "Perceived Ambiguity and Relevant Measures," Econometrica, Econometric Society, vol. 82, pages 1945-1978, September.
    16. Sujoy Mukerji & Peter Klibanoff and Kyoungwon Seo, 2011. "Relevance and Symmetry," Economics Series Working Papers 539, University of Oxford, Department of Economics.
    17. Bade, Sophie, 2022. "Dynamic semi-consistency," Games and Economic Behavior, Elsevier, vol. 134(C), pages 117-126.
    18. Epstein, Larry G. & Seo, Kyoungwon, 2014. "De Finetti meets Ellsberg," Research in Economics, Elsevier, vol. 68(1), pages 11-26.
    19. Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Classical Subjective Expected Utility," Working Papers 400, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    20. Cerreia-Vioglio, Simone & Maccheroni, Fabio & Marinacci, Massimo & Montrucchio, Luigi, 2013. "Ambiguity and robust statistics," Journal of Economic Theory, Elsevier, vol. 148(3), pages 974-1049.
      • Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Luigi Montrucchio, 2011. "Ambiguity and Robust Statistics," Working Papers 382, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    21. Andrew Ellis, 2021. "Correlation Concern," Papers 2105.13341, arXiv.org.
    22. Larry G Epstein & Yoram Halevy, 2024. "Hard-to-Interpret Signals," Journal of the European Economic Association, European Economic Association, vol. 22(1), pages 393-427.
    23. Klibanoff, Peter & Mukerji, Sujoy & Seo, Kyoungwon & Stanca, Lorenzo, 2022. "Foundations of ambiguity models under symmetry: α-MEU and smooth ambiguity," Journal of Economic Theory, Elsevier, vol. 199(C).
    24. Massimiliano Amarante, 2017. "Information and Ambiguity: Toward a Foundation of Nonexpected Utility," Mathematics of Operations Research, INFORMS, vol. 42(4), pages 1254-1279, November.
    25. Leonardo Pejsachowicz, 2016. "Stochastic Independence under Knightian Uncertainty," Post-Print hal-01753323, HAL.

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    More about this item

    Keywords

    Ambiguity; exchangeability; symmetry; updating; learning; multiple-priors;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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